Settlement Agreements

Why do employers use settlement agreements?

Employers generally use settlement agreements to terminate an employment contract by mutual consent whilst protecting their interests.

Once a settlement agreement is signed, an employee cannot then make a legal claim against their employer for a breach of employment rights or the termination of their employment.

An employer might use a settlement agreement in the following circumstances:

• An employee’s role is being made redundant, but the Employer does not want to go through a long consultation process. The Employee might sign a settlement agreement in return for being paid additional redundancy pay and payment in lieu of notice.
• An employee’s performance is inadequate, or there has been misconduct. A settlement agreement might be offered in return for the Employee leaving quietly. The Employer might offer to provide the Employee with a reference and make no record of dismissal.
• An unfair dismissal claim has been brought against the Employer. If the Employer thinks they will lose the Claim they may offer a former employee a settlement agreement. The ex-employee will receive an amount of money in return for agreeing not to take their case to an employment tribunal.
• A discrimination claim is being brought against the Employer. The Employer might settle the Claim to save the cost of defending the case, even if they believe they may win.
• An employee is in poor health and unable to do their job. In this case, they may be classed as disabled under the Equality Act 2010. The Employer must make ‘reasonable adjustments’ to enable the Employee to continue to work under the Act. If the Employee is still unable to work, they might agree to leave in return for payment. A settlement agreement may be signed to prevent the Employee from bringing a claim against the Employer.

Confidentiality clauses are often found in settlement agreements. This means an employee cannot disclose the terms of the Agreement they have signed to anybody else. It can also mean the Employee is not allowed to tell anybody else they have signed a settlement agreement.

An employer may include a confidentiality clause to protect their reputation by stopping an employee from making harmful statements. They may also include a clause, so they do not leave themselves open to other employees negotiating the same settlement.

Why do you need a solicitor?

A settlement agreement is only legally binding if an employee has received independent legal advice before signing.

If your employer has offered you a settlement agreement, they will normally pay for you to obtain legal advice. You may decide not to go with an advisor chosen by your employer, but to seek legal advice yourself. Settlement agreements include legal jargon and complicated terms and conditions, so it is very important to choose a solicitor who specialises in settlement agreements.

Our experienced settlement agreement solicitors at Davisons Law will make sure you receive clear advice to make an informed decision on whether signing a settlement agreement is right for you.

When you sign a settlement agreement, you agree to waive any claim you have against your employer for breach of rights or termination of employment.

There may be circumstances where you have a potential claim with a higher value than the compensation offered to you in the Settlement agreement.

If you decide to sign a settlement agreement, we will ensure the terms protect your best interests.

If your employer has concerns about your performance, we would expect the compensation you are offered to cover the time a fair performance review would normally take. Dismissal is usually on notice, so you should be paid for your notice period in addition to any compensation you are entitled to receive.

Settlement agreements are usually offered when redundancies are undertaken. Your employer might offer you a greater amount of compensation to avoid having to undertake a redundancy process.

We will assess whether you are genuinely being dismissed because your role is redundant and not for any other reason. We will also determine whether the level of compensation you receive reflects the time it would normally take to go through the redundancy process.

How our settlement agreement solicitors can help you

Our experienced solicitors specialise in helping to advise employees clearly on settlement agreements and to negotiate the most favourable terms, where applicable.

If your employer has offered you a settlement agreement, we can advise you whether it serves your interests and explore all your options with you. As stated, the Employer will normally pay for you to obtain legal advice, subject to you entering into the Settlement Agreement.